The Opportunity Cost of NOT Using an Energy Advisor

August 17, 2016 Erin Decker

Contributed By: Erin Decker, Director, Client Management

Prior to joining the Schneider Electric team, Erin was a senior sustainability manager at Salesforce, where she oversaw the global sustainability team, helped set a 100% renewable energy commitment and strategy, and executed the company’s first long-term PPA.

 

Executing a successful renewable power purchase agreement (PPA) is a nuanced process that involves education, internal approvals, project selection and evaluation. With corporate energy buying on the rise, companies are increasingly interested in exploring how to secure a long-term contract for renewable energy.  It is not unheard of for a company to complete one of these complex deals on their own, but the vast majority of commercial, industrial, and institutional (C&I) PPA deals involve a renewable energy advisor to facilitate the process.  

Energy managers and sustainability champions who recognize the value of engaging an experienced 3rd party put their company on the fast-track to successful clean energy procurement.  In my experience, there are a few top reasons why corporates choose to work with an advisor and some additional risks they take on if they choose to run a PPA process solo. 

Education & Internal Approvals

Renewable energy is a dynamic industry with continual changes in policy, market trends, potential risks, technologies, etc.  The majority of C&I buyers pursuing PPAs for the first time don’t have a niche understanding of the industry or the time to build it.  Their lack of education alone presents a significant roadblock. And with so many companies working toward renewable procurement goals for the fast-approaching deadline of 2020, this timeline is even further compressed.

“This isn’t our core business: how do we understand the risks involved?”

An early, and often the most arduous, step in the PPA process is to involve all departments (including sustainability, energy, accounting, treasury, finance and the C-suite) and get them on the same page about how a PPA works and drives value and risk for their organization.  The biggest question an internal champion is likely to face is “This isn’t our core business: how do we understand the risks involved?”

An experienced renewable energy advisor can expedite the internal approval process by providing key insights and smoothing pinch-points that may arise.  Producing the desired outcome in a PPA requires answering technical questions beyond the economic risks – including understanding potential accounting implications, treasuring considerations and marketing claims.  

Even with a renewable energy advisor by your side, this internal on-boarding can be a heavy lift. Many of Schneider Electric's PPA clients take a year – or more – to become comfortable with this type of transaction. Without the support of an advisor, these same companies may have risked passing up on a PPA, and the opportunity to lock in a low energy price and contribute to a cleaner energy economy.  

As a former head of sustainability at a Fortune 500 company entering into the renewable energy world for the first time, I’ve experienced firsthand what sustainability champions in that position face.  My company had the drive to do a PPA but lacked the deep market knowledge and the internal capacity to see it through on our own. Attaining organization-wide buy-in on a PPA is far more feasible with the support of an unbiased external partner. Without the help from our advisor, we would not have been able to navigate the internal education and complex risk analysis needed to select the right project.

Project Identification & Evaluation

Education and internal approvals are ongoing throughout the PPA process. Likewise, locating and evaluating the right projects is equally as important.  Access to the developer market plays a huge role in identifying a PPA deal that will meet a corporation’s unique financial and sustainability goals. Typically, first time PPA buyers have a list of developers offering them options but are missing a full view of the industry landscape.

Issuing a comprehensive request for proposal (RFP) is one of the best ways to understand the selection of projects available in any global market.  A formal RFP ensures that renewable energy developers compete against each other to provide the strongest offers.  Corporates who attempt to do this piece on their own often find that they receive inadequate responses, haven’t asked the right questions and aren’t sure how to compare responses in a logical manner. The right renewable energy advisor will draw on their broad market perspective and standing relationships with a wide variety of developers to run an RFP efficiently and effectively.   

When a company is undertaking a significant long-term commitment like a PPA, they also, understandably, want to know exactly what they are getting into.  It is imperative to vet all viable project options using a stringent due diligence process. An advisor will evaluate projects and include detailed financial analysis, future energy price forecasting, and developer and project risk assessments to obtain a clear picture of possible scenarios.  Access to this expert level of evaluation can make-or-break a company’s efforts as they pursue long-term renewables.

After identifying the most attractive project, a good advisor will support clients through contract negotiations and beyond, to ensure that contract terms are favorable for the company and are in line with the current market. At this stage, the value of a long track record of successful deals becomes evident. PPA contracts by nature are very different from other contracts C&I customers typically see. Technical prowess and industry awareness are essential.

Vetting Unique Opportunities

Individual developer and retail supplier options are also becoming more prevalent in today’s increasingly complex market.  You may have even been approached recently regarding a project, or a small subset of projects, that pique interest.  But how will you know that the long-term deal being proposed is the best in the market?  It is essential to keep your project identification and evaluation process competitive.  An experienced, agnostic advisor will help you examine all project profiles and risks (including single offers that may come across your desk), provide deep independent access to the developer market and ensure you have a complete view of the full competitive landscape and best-in-market solutions.     

Companies have the exciting opportunity to reduce or eliminate operational emissions, while driving value to their bottom line with PPAs. For companies looking for an advanced energy procurement strategy, it is wise to consult an established renewable energy advisor. The Schneider Electric Cleantech team provides unparalleled experience and expertise in strategic renewable energy execution to more organizations than any other consultancy and has collectively advised on over 5.5 GW of new wind and solar capacity worldwide.

Contact us today to learn how working with a buyer’s advisor can transform your corporate sustainability efforts.  

 

 

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